Trans-Atlantic Trade and Investment Partnership and the European Parliament

Fredrik Erixon18 May 2014

Less than a year after its launch, the Trans-Atlantic Trade and Investment Partnership (TTIP) has caused a lot of controversy. This column discusses the challenges the TTIP is likely to face after the election of a new European Parliament. Key political leaders should engage in the TTIP discussions and not leave them to the unelected officials in Brussels. Otherwise, the TTIP may not deliver sizeable economic benefits, or there might not be a negotiation result at all.

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Less than a year after its launch, a growing number of trade observers fear that the negotiations over the Transatlantic Trade and Investment Partnership (TTIP) have lost their way. Negotiators, this view suggests, are still feeling each other out, talking about what they should talk about rather than negotiating.

TTIP has received a lot of bad press recently, leading to a negative feedback loop.

• The US Congress is debating the granting of a Trade Promotion Authority to the Obama Administration – and even if it may not be necessary for the TTIP negotiation at its current state, an absence of one is seen as a bellwether also for the TTIP negotiations.

• In Europe, deputies and party groups in the European Parliament have drawn up battle plans for the European elections in May that have ushered TTIP into a much more political milieu than people initially expected.

Investor-State Dispute Settlement (ISDS) provisions in the planned TTIP section on investment protection have caused the biggest controversy. The European Commission announced a pause in the investment talks to review its policy on issues related to ISDS. This move is seen by some as a panic reaction to the growing criticism from deputies in the Parliament and groups in the NGO community. And behind ISDS looms other issues related to regulatory convergence that are easy to exploit in election campaigns – such as GMOs and hormone-treated beef – to only pick two.

Taken together, these political developments have been seen as ominous for the future of TTIP. Once the new Parliament is in place, it is expected that TTIP will face stronger political resistance as parties will come with a new and incorrigible ‘mandate’ that is incompatible with ISDS or controversial changes in Europe’s regulations to fit better with US regulations.

TTIP is not doomed

These developments don’t mean that TTIP is dead. Nor should one read too much into the politics of trade around the election to the European Parliament.

• While the politics of trade in Europe has become more complex, it is still the member states in the EU that carry the power in the shaping and the ratification of a trade agreement.

The European Parliament has increased its influence, but that influence ultimately hinges upon its willingness to reject an agreement that the Council has approved, which only happens rarely in the EU system of decision-making.

• The European Parliament, like the member states, has approved a ‘mandate’ to the European Commission about the content and the ambitions of TTIP.

This mandate is what matters until negotiations have emerged to a point when the final design of an agreement can be debated.

Nor has the European Parliament criticism been sharp – or had much of an influence. Despite all the activity in recent months in Brussels, few TTIP sceptic NGOs and deputies are actually against something substantial – and to the extent they come with a specific agenda, it is often about calls for greater transparency in the negotiation, or that they should have a seat at the negotiating table.

The pause in the ISDS talks has less to do with events in the European Parliament and the forthcoming election. It was rather prompted by proposals to make changes in the EU approach to Bilateral Investment Treaties (European Commission, 2013). If it was influenced by politics, it followed a pattern seen ever since countries transferred their investment policy to the EU. Some countries, and Germany in particular, regret having signed away (in the Lisbon Treaty) the right to do their own BITs. Ever since, they have been acting as if they prefer the status quo over substituting their own BITs with a new European BIT.

Furthermore, as Germany is challenged by foreign (but not American) companies hoping that existing BITs will help them to collect awards for income lost due to Germany’s so-called Energiewende – the phasing-out of nuclear energy – investment protection in Germany is currently fraught with politics.

• For all the talk in Germany about not approving ISDS, Germany is not suggesting to cancel its current BIT with the US (or, as it is called, the Friendship, Commerce and Navigation Treaty), which also allows for investor-state arbitration.

• Nor is it suggesting withdrawing from any other of the 150-plus BITs or BIT-like treaties that Germany has signed with other countries.

The changing politics of TTIP in Brussels is, however, indicative of how difficult it has been for EU and US authorities to give TTIP a character and charge it with feasible ambitions. Like many other large trade agreements, it is one that will be won or lost on its economic merits. There is much fuss about TTIP as a strategy to rejuvenate the Atlantic alliance or as part of a geo-economic strategy to oust China and other newly emerged economies from the negotiation table when future trade policy is drawn up. This is a trade agreement, however, that only will stand a chance to become reality if it delivers on its promise of boosting jobs and growth. To deliver sizeable economic benefits, the EU and the US have to agree on a package of changes to regulatory policies and practices that are to some extent unknown but that still will be controversial. According to an impact assessment from the Centre for Economic Policy Research (CEPR 2013), 80% of the potential economic gains from TTIP would be generated by changes in non-tariff barriers and regulations, including service liberalisation and greater openness in public procurement.

Lack of clarity

The two sides started the negotiations without a clear or ‘constitutional’ idea about the scope and nature of TTIP. Despite a year of preparatory work in the High Level Working Group on Jobs and Growth, the group tasked to examine the merits and feasibility of a transatlantic free trade agreement, the first year of TTIP has mostly been about giving it a character. This did not happen:

• TTIP initially became hostage to a broad rush of transatlantic faith.

• It was captured and defined by people with vastly distorted views on what a trade negotiation realistically can be about.

Apart from views about fixing the world’s many security problems, TTIP was charged with the ambition of ‘setting new global standards’ for a variety of policies or creating a single transatlantic market. It follows a pattern from past attempts at a transatlantic free trade accord. They have been suggested by leading politicians after periods of serious rifts between the US and European countries about matters of war – and thus been largely part of a non-economic strategy or a strategy that simply is too unrealistic for trade negotiations (Erixon 2012).

Concluding remarks

As there are still uncertainties about the scope and nature of TTIP, there is now a risk or chance, depending on your personal view, that TTIP will be defined by those that do not want an ambitious TTIP, or that do not want TTIP at all. If key political leaders like President Barack Obama and Chancellor Angela Merkel continue to grow their distance to TTIP and their common trade agenda, and leave it to Brussels’ unelected officials to do the opinion work, the result of TTIP may not correspond with its economic promises. Or they may not be a final negotiation result at all.

Such a failure would not be the consequence of the European elections, or what old and new trade-sceptic deputies will do when they get to Brussels. It would be a result of weak leadership from those political leaders that have the power to define what TTIP should be about and what economic gains it could bring.